I have a four year old son. He is a sweet boy, but I find that it can be difficult to reach him when I employ my subtle parenting techniques that worked so well with his older sisters. With Jake, blunt force trauma is only way to connect. So, I brainwash him.
If I ask him: "Where does money come from,” he is conditioned to answer "Work." If I ask "What happens to you if you take drugs," he responds "you die.”
It's not very sophisticated, but it works. I am considering using the same strategy for conditioning some of the newly minted managing partners at the small firms we work with every day.
Where does money come from? Invoices. What happens to your firm if you don't send out your invoices in a timely matter? It dies.
At NexFirm we have a well structured process for our clients to send invoices. We check throughout the month to confirm that they are entering time as they go (read this prior post to learn why this is critical). Just before the month comes to a close, we review matters to be certain that we have all the information that we need to know how they will be billed. On the last day of the month, we send reminders and follow up with those who haven't entered all of their time. Pre-billing begins in the evening on the last day of the month so that those who need to review can do so in the AM on the first of the month. We follow up (read: hound) billers to review, edit and approve invoices so that we can send them out on the first. For our clients that adhere to our process, bills are out on the first and payments can come in as soon as 15 days later and realization rates are generally high.
For those who do not follow our process, invoices can go out a few days late. They get paid later, but that doesn’t mean they get to pay their own bills later. Not such a great deal, but for those who can afford it they don't fret much. They should.
The cash flow disadvantage that arises from billing late is easy to conceptualize. Some of the other effects are not as evident, but are equally as damaging.
-Realization goes down. When you don't demonstrate a seriousness to collect your fees by having a prompt, methodical billing process, clients can't help but test your boundaries. Payments come in later, which may require your billing department to reach out to clients with "past due" reminders and increase the pain of payment experience. As time passes, the probability that clients find reasons to make deductions to your bills or refuse to pay increases.
-Perception of value goes down. The moment that you resolve a painful issue for your client, the memory of that pain fades. If they are paying the bill months after you have provided your services, they remember only the pain of paying your bill, and not the value you provided.
-Your staff perceives that you are sloppy. A firm that habitually sends out their invoices late is often perceived poorly by the staff. You start hearing them begin sentences with: "Unlike here, but at a real firm..." Obviously, this is not what a managing partner wants to hear.
-Your borrowing costs are higher. The shorter and more dependable your cash recovery cycle is, the more access you have to borrowing at favorable rates.
Needless to say, the busier you are with the daily operations of managing your practice and providing services to your clients, the less time you’ll have for administrative tasks such as invoice preparation and review. But when you weigh the pain of spending a few hours a month to get it right against the negative impact to your firm (and your finances), can you really afford not to?
David DePietto is the founder and CEO of NexFirm. He can be reached at email@example.com.